Audit and Accounting Guide Depository and Lending Institutions E-Book
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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: AICPA Audit and Accounting Guide
- Sprache: Englisch
The 2017 edition of this industry standard resource offers clear and practical guidance of audit and accounting issues such as transfers and servicing, troubled debt restructurings, financing receivables and the allowance for loan losses, and fair value accounting. It also provides direction for institutions assessing their operations and internal controls for regulatory considerations as well as discussions on existing regulatory reporting matters. Updates include: * SAS No. 132, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern * SSAE No. 18, Attestation Standards: Clarification and Recodification * Note: FASB ASU No. 2016-13 will have a significant impact on the guide; however, incorporation of guidance will not occur until the 2018 or 2019 edition of the guide.
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Veröffentlichungsjahr: 2017
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Preface
(Updated as of July 1, 2017)
About AICPA Audit and Accounting Guides
This AICPA audit and accounting guide has been developed by the AICPA Guides Combination Task Force to assist management in the preparation of their financial statements in conformity with U.S. generally accepted accounting principles (GAAP) and to assist practitioners in performing and reporting on their audit or their attestation engagements.
AICPA Guides may include certain content presented as “Supplement,” “Appendix,” or “Exhibit.” A supplement is a reproduction, in whole or in part, of authoritative guidance originally issued by a standard setting body (including regulatory bodies) and applicable to entities or engagements within the purview of that standard setter, independent of the authoritative status of the applicable AICPA Guide. Both appendixes and exhibits are included for informational purposes and have no authoritative status.
The Financial Reporting Executive Committee (FinREC) is the designated senior committee of the AICPA authorized to speak for the AICPA in the areas of financial accounting and reporting. Conforming changes made to the financial accounting and reporting guidance contained in this guide are approved by the FinREC Chair (or his or her designee). Updates made to the financial accounting and reporting guidance in this guide exceeding that of conforming changes are approved by the affirmative vote of at least two-thirds of the members of FinREC.
This guide does the following:
Identifies certain requirements set forth in the FASB
Accounting Standards Codification
®
(ASC).
Describes FinREC’s understanding of prevalent or sole industry practice concerning certain issues. In addition, this guide may indicate that FinREC expresses a preference for the prevalent or sole industry practice, or it may indicate that FinREC expresses a preference for another practice that is not the prevalent or sole industry practice; alternatively, FinREC may express no view on the matter.
Identifies certain other, but not necessarily all, industry practices concerning certain accounting issues without expressing FinREC’s views on them.
Provides guidance that has been supported by FinREC on the accounting, reporting, or disclosure treatment of transactions or events that are not set forth in FASB ASC.
Accounting guidance for nongovernmental entities included in an AICPA Guide is a source of nonauthoritative accounting guidance. As discussed later in this preface, FASB ASC is the authoritative source of U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the SEC.
An AICPA Guide containing auditing guidance related to generally accepted auditing standards (GAAS) is recognized as an interpretive publication as defined in AU-C section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards (AICPA, Professional Standards). Interpretive publications are recommendations on the application in specific circumstances, including engagements for entities in specialized industries.
Interpretive publications are issued under the authority of the AICPA Auditing Standards Board (ASB) after all ASB members have been provided an opportunity to consider and comment on whether the proposed interpretive publication is consistent with GAAS. The members of the ASB have found the auditing guidance in this guide to be consistent with existing GAAS.
Although interpretive publications are not auditing standards, AU-C section 200 requires the auditor to consider applicable interpretive publications in planning and performing the audit because interpretive publications are relevant to the proper application of GAAS in specific circumstances. If the auditor does not apply the auditing guidance in an applicable interpretive publication, the auditor should document how the requirements of GAAS were complied with in the circumstances addressed by such auditing guidance.
The ASB is the designated senior committee of the AICPA authorized to speak for the AICPA on all matters related to auditing. Conforming changes made to the auditing guidance contained in this guide are approved by the ASB Chair (or his or her designee) and the Director of the AICPA Audit and Attest Standards Staff. Updates made to the auditing guidance in this guide exceeding that of conforming changes are issued after all ASB members have been provided an opportunity to consider and comment on whether the guide is consistent with the Statements on Auditing Standards (SASs).
Any auditing guidance in a guide appendix or exhibit (whether a chapter or back matter appendix or exhibit), though not authoritative, is considered an “other auditing publication.” In applying such guidance, the auditor should, exercising professional judgment, assess the relevance and appropriateness of such guidance to the circumstances of the audit. Although the auditor determines the relevance of other auditing guidance, auditing guidance in a guide appendix or exhibit has been reviewed by the AICPA Audit and Attest Standards staff and the auditor may presume that it is appropriate.
An AICPA Guide containing attestation guidance is recognized as an interpretive publication as defined in AT-C section 105, Concepts Common to All Attestation Engagements (AICPA, Professional Standards). Interpretive publications are recommendations on the application of Statements on Standards for Attestation Engagements (SSAEs) in specific circumstances, including engagements for entities in specialized industries. Interpretive publications are issued under the authority of the ASB. The members of the ASB have found the attestation guidance in this guide to be consistent with existing SSAEs.
A practitioner should be aware of and consider the guidance in this AICPA Guide applicable to his or her attestation engagement. If the practitioner does not apply the attestation guidance included in an applicable AICPA Guide, the practitioner should be prepared to explain how he or she complied with the SSAE provisions addressed by such attestation guidance.
Any attestation guidance in a guide appendix or exhibit (whether a chapter or back matter appendix or exhibit), though not authoritative, is considered an “other attestation publication,” In applying such guidance, the practitioner should, exercising professional judgment, assess the relevance and appropriateness of such guidance to the circumstances of the engagement. Although the practitioner determines the relevance of other attestation guidance, such guidance in a guide appendix or exhibit has been reviewed by the AICPA Audit and Attest Standards staff and the practitioner may presume that it is appropriate.
The ASB is the designated senior committee of the AICPA authorized to speak for the AICPA on all matters related to attestation. Conforming changes made to the attestation guidance contained in this guide are approved by the ASB Chair (or his or her designee) and the Director of the AICPA Audit and Attest Standards Staff. Updates made to the attestation guidance in this guide exceeding that of conforming changes are issued after all ASB members have been provided an opportunity to consider and comment on whether the guide is consistent with the SSAEs.
Purpose and Applicability
This AICPA Guide has been prepared to assist financial institutions in preparing financial statements in conformity with GAAP and to assist independent accountants in reporting on financial statements (and, as discussed in appendix A, "FDI Act Reporting Requirements," other written management assertions) of those entities.
Chapters of the guide are generally organized by financial statement line item into four sections:
Scope
This guide applies to all banks, savings institutions, credit unions, finance companies, and other entities (including entities with trade receivables). That population includes the following:
This guide does not apply to the following:
As used in this guide, the term depository institution means a bank, credit union, and savings institution. The terms financial institutions or institutions refer to all entities covered by this guide.
As stated in the previous list, this guide applies to the financing activities of all kinds of enterprises. Certain entities may have financing activities but are not otherwise covered by this guide—for example, the financing subsidiary, unit, or division of a manufacturing company or retailer. Only those sections and chapters of this guide related to financing activities are intended to apply to such entities. The remaining portions are not intended to apply to such entities, but may otherwise be useful to financial statement preparers and auditors.
Certain terms are used interchangeably throughout the guide as follows:
Credit unions often refer to
shares, dividends on shares, and members
, which are equivalent to
deposits, interest on deposits, and customers
for banks and savings institutions.
Finance companies often refer to
finance receivables
, which are equivalent to
loans
or
loans receivable
for other entities. A
credit officer
of a finance company is the same as a
loan officer
.
A
supervisory committee
of a credit union is the functional equivalent of an
audit committee
of other entities.
Limitations
In July 1990, the AICPA’s Board of Directors authorized the AICPA staff to make conforming changes to the Audit and Accounting Guides with the approval of the chairman of the ASB or the chairman of FinREC, as appropriate. The board resolution defines conforming changes as "revisions intended to effect changes necessitated by the issuance of authoritative pronouncements." Conforming changes are carefully and judiciously made and normally limited to items that result from the issuance of new authoritative literature. Conforming changes also include nonaccounting and nonauditing revisions that modify, add, or delete regulatory guidance and industry background information in response to changes in the regulatory and industry environment. Conforming changes do not include recent legislative programs or other governmental measures or industry actions that may have been taken as a result of the current economic environment.
Recognition
AICPA Senior Committees
Auditing Standards Board
Jay Brodish, Jr., Member Michael J. Santay, Chair
Financial Reporting Executive Committee
Muneera Carr, MemberJim Dolinar, Chair
The AICPA gratefully acknowledges those members of the AICPA Depository and Lending Institutions Expert Panel (2016–2017) who reviewed or otherwise contributed to the development of this edition of the guide:
Sydney Garmong, ChairLarry Gee Mike Lundberg Jeffrey C. Skumin Lindsay Stevenson Chris Vallez
In addition to the 2015–2016 expert panel members listed, the AICPA gratefully acknowledges those who reviewed and otherwise contributed to the development of this guide: Tom Canfarotta, Kathleen Healy, Jeff Honeycutt, Scott Klitsch, John G. Klinge, Jennifer Lauer, Randy Morse, Randy Oberdiek, and Barry M. Pelagatti.
AICPA Staff
Teresa Brenan ManagerProduct Management & Development—Public Accounting
Kim Kushmerick Associate DirectorAccounting Standards—Public Accounting
Jason T. Brodmerkel Senior Technical ManagerAccounting Standards and Staff Liaison to the AICPA Depository and Lending Institutions Expert Panel
Guidance Considered in This Edition
This edition of the guide has been modified by the AICPA staff to include certain changes necessary due to the issuance of authoritative guidance since the guide was originally issued, and other revisions as deemed appropriate. Relevant guidance issued through July 1, 2017, has been considered in the development of this edition of the guide. However, this guide does not include all audit, accounting, reporting, and other requirements applicable to an entity or a particular engagement. This guide is intended to be used in conjunction with all applicable sources of relevant guidance.
Relevant guidance that is issued and effective on or before July 1, 2017, is incorporated directly in the text of this guide. Relevant guidance issued but not yet effective as of July 1, 2017, but becoming effective on or before December 31, 2017, is also presented directly in the text of the guide, but shaded gray and accompanied by a footnote indicating the effective date of the new guidance. The distinct presentation of this content is intended to aid the reader in differentiating content that may not be effective for the reader’s purposes (as part of the guide’s “dual guidance” treatment of applicable new guidance).
Relevant guidance issued but not yet effective as of the date of the guide and not becoming effective until after December 31, 2017, is referenced in a “guidance update” box; that is, a box that contains summary information on the guidance issued but not yet effective.
In updating this guide, all guidance issued up to and including the following was considered, but not necessarily incorporated, as determined based on applicability:
FASB Accounting Standards Update (ASU) No. 2017-10,
Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (a consensus of the FASB Emerging Issues Task Force)
SAS No. 132,
The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern
(AICPA,
Professional Standards
, AU-C sec. 570)
Interpretation No. 3, "Reporting on Audits Conducted in Accordance With Auditing Standards Generally Accepted in the United States of America and International Standards on Auditing" (AICPA,
Professional Standards
, AU-C sec. 9700 par. .08–.13), of AU-C section 700,
Forming an Opinion and Reporting on Financial Statements
Revised interpretations issued through July 1, 2017, including Interpretation No. 3, "Appropriateness of Identifying No Significant Deficiencies or No Material Weaknesses in an Interim Communication" (AICPA,
Professional Standards
, AU-C sec. 9265 par. .08–.10), of AU-C section 265,
Communicating Internal Control Related Matters Identified in an Audit
Statement of Position 13-2,
Performing Agreed-Upon Procedures Engagements That Address the Completeness, Mapping, Consistency, or Structure of XBRL-Formatted Information
(AICPA,
Professional Standards
, AUD sec. 55)
SSAE No. 18,
Attestation Standards: Clarification and Recodification
(AICPA,
Professional Standards
)
Interpretation No. 4, "Performing and Reporting on an Attestation Engagement Under Two Sets of Attestation Standards" (AICPA,
Professional Standards
, AT-C sec. 9105 par. .31–.35), of AT-C section 105,
Concepts Common to All Attestation Engagements
PCAOB Auditing Standard No. 18,
Related Parties
(AICPA,
PCAOB Standards and Related Rules
)
Users of this guide should consider guidance issued subsequent to those items listed previously to determine their effect, if any, on entities and engagements covered by this guide. In determining the applicability of recently issued guidance, its effective date should also be considered.
The changes made to this edition of the guide are identified in appendix H, "Schedule of Changes Made to the Text From the Previous Edition." The changes do not include all those that might be considered necessary if the guide were subjected to a comprehensive review and revision.
PCAOB quoted content is from PCAOB Auditing Standards and PCAOB Staff Audit Practice Alerts, ©2015, Public Company Accounting Oversight Board. All rights reserved. Used by permission.
FASB standards quoted are from the FASB Accounting Standards Codification ©2015, Financial Accounting Foundation. All rights reserved. Used by permission.
FASB ASC Pending Content
Presentation of Pending Content in FASB ASC
Amendments to FASB ASC (issued in the form of ASUs) are initially incorporated into FASB ASC in "pending content" boxes that follow the paragraphs being amended with links to the transition information. The pending content boxes are meant to provide users with information about how the guidance in a paragraph will change as a result of the new guidance.
Pending content applies to different entities at different times due to varying fiscal year-ends, and because certain guidance may be effective on different dates for public and nonpublic entities. As such, FASB maintains amended guidance in pending content boxes within FASB ASC until the roll-off date. Generally, the “roll-off” date is six months following the latest fiscal year end for which the original guidance being amended could still be applied.
Presentation of FASB ASC Pending Content in AICPA Guides
Amended FASB ASC guidance that is included in pending content boxes in FASB ASC on July 1, 2017, is referenced as "Pending Content" in this guide. Readers should be aware that "Pending Content" referenced in this guide will eventually be subjected to FASB’s roll-off process and no longer be labeled as "Pending Content" in FASB ASC (as discussed in the previous paragraph).
Terms Used to Define Professional Requirements in This AICPA Guide
Any requirements described in this guide are normally referenced to the applicable standards or regulations from which they are derived. Generally, the terms used in this guide describing the professional requirements of the referenced standard setter (for example, the ASB) are the same as those used in the applicable standards or regulations (for example, “must” or “should”). However, where the accounting requirements are derived from FASB ASC, this guide uses “should,” whereas FASB uses “shall.” In its resource document “About the Codification” that accompanies FASB ASC, FASB states that it considers the terms “should” and “shall” to be comparable terms and to represent the same concept—the requirement to apply a standard.
Readers should refer to the applicable standards and regulations for more information on the requirements imposed by the use of the various terms used to define professional requirements in the context of the standards and regulations in which they appear.
Certain exceptions apply to these general rules, particularly in those circumstances where the guide describes prevailing or preferred industry practices, or both, for the application of a standard or regulation. In these circumstances, the applicable senior committee responsible for reviewing the guide’s content believes the guidance contained herein is appropriate for the circumstances.
Applicability of GAAS and PCAOB Standards
Appendix A, “Council Resolution Designating Bodies to Promulgate Technical Standards,” of the AICPA Code of Professional Conduct recognizes both the ASB and the PCAOB as standard setting bodies designated to promulgate auditing, attestation, and quality control standards. Paragraph .01 of the “Compliance With Standards Rule” (AICPA, Professional Standards, ET sec. 1.310.001 and 2.310.001) requires an AICPA member who performs an audit to comply with the applicable standards.
Audits of the financial statements of those entities subject to the oversight authority of the PCAOB (that is, those audit reports within the PCAOB’s jurisdiction as defined by the Sarbanes-Oxley Act of 2002, as amended) are to be conducted in accordance with standards established by the PCAOB, a private sector, nonprofit corporation created by the Sarbanes-Oxley Act of 2002. The SEC has oversight authority over the PCAOB, including the approval of its rules, standards, and budget. In citing the auditing standards of the PCAOB, references generally use section numbers within the reorganized PCAOB auditing standards and not the original standard number, as appropriate.
Audits of the financial statements of those entities not subject to the oversight authority of the PCAOB (that is, those audit reports not within the PCAOB’s jurisdiction as defined by the Sarbanes-Oxley Act of 2002, as amended)—hereinafter referred to as nonissuers1—are to be conducted in accordance with GAAS as issued by the ASB. The ASB develops and issues standards in the form of SASs through a due process that includes deliberation in meetings open to the public, public exposure of proposed SASs, and a formal vote. The SASs and their related interpretations are codified in AICPA Professional Standards. In citing GAAS and their related interpretations, references generally use section numbers within the codification of currently effective SASs and not the original statement number, as appropriate.
The auditing content in this guide primarily discusses GAAS issued by the ASB and is applicable to audits of nonissuers. Users of this guide may find the tool developed by the PCAOB’s Office of the Chief Auditor helpful in identifying comparable PCAOB standards. The tool is available at https://pcaobus.org/Standards/Auditing/Pages/FindAnalogousStandards.aspx.
Considerations for audits of entities subject to the oversight authority of the PCAOB may also be discussed within this guide’s chapter text. When such discussion is provided, the related paragraphs are designated with the following title: Considerations for Audits Performed in Accordance With PCAOB Standards. PCAOB guidance included in an AICPA guide has not been reviewed, approved, disapproved, or otherwise acted upon by the PCAOB and has no official or authoritative status.
Applicability of Quality Control Standards
QC section 10, A Firm’s System of Quality Control (AICPA, Professional Standards), addresses a CPA firm’s responsibilities for its system of quality control for its accounting and auditing practice. A system of quality control consists of policies that a firm establishes and maintains to provide it with reasonable assurance that the firm and its personnel comply with professional standards, as well as applicable legal and regulatory requirements. The policies also provide the firm with reasonable assurance that reports issued by the firm are appropriate in the circumstances.
QC section 10 applies to all CPA firms with respect to engagements in their accounting and auditing practice. In paragraph .13 of QC section 10, an accounting and auditing practice is defined as “a practice that performs engagements covered by this section, which are audit, attestation, compilation, review, and any other services for which standards have been promulgated by the ASB or the AICPA Accounting and Review Services Committee under the “General Standards Rule” (AICPA, Professional Standards, ET sec.1.300.001) or the “Compliance With Standards Rule” (AICPA, Professional Standards, ET sec. 1.310.001) of the AICPA Code of Professional Conduct. Although standards for other engagements may be promulgated by other AICPA technical committees, engagements performed in accordance with those standards are not encompassed in the definition of an accounting and auditing practice.”
In addition to the provisions of QC section 10, readers should be aware of other sections within AICPA Professional Standards that address quality control considerations, including the following provisions that address engagement level quality control matters for various types of engagements that an accounting and auditing practice might perform:
AU-C section 220,
Quality Control for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards
(AICPA,
Professional Standards
)
AT-C section 105,
Concepts Common to All Attestation Engagements
(AICPA,
Professional Standards
)
AR-C section 60,
General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services
(AICPA,
Professional Standards
)
Because of the importance of engagement quality, this guide includes appendix D, “Overview of Statements on Quality Control Standards.” This appendix summarizes key aspects of the quality control standard. This summarization should be read in conjunction with QC section 10, AU-C section 220, AT-C section 105, AR-C section 60, and the quality control standards issued by the PCAOB, as applicable.
Alternatives Within U.S. GAAP
The Private Company Council (PCC), established by the Financial Accounting Foundation’s Board of Trustees in 2012, and FASB, working jointly, will mutually agree on a set of criteria to decide whether and when alternatives within U.S. GAAP are warranted for private companies. Based on those criteria, the PCC reviews and proposes alternatives within U.S. GAAP to address the needs of users of private company financial statements. These U.S. GAAP alternatives may be applied to those entities that are not public business entities, not-for-profits, or employee benefit plans.
The FASB ASC Master Glossary defines a public business entity as follows:
A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity.
a. It is required by the SEC to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
b. It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.
c. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
d. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
e. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including footnotes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.
An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity’s filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC.
Considerations related to alternatives for private companies may be discussed within this guide’s chapter text. When such discussion is provided, the related paragraphs are designated with the following title: Considerations for Private Companies That Elect to Use Standards as Issued by the Private Company Council.
AICPA.org Website
The AICPA encourages you to visit the website at www.aicpa.org and the Financial Reporting Center at www.aicpa.org/FRC. The Financial Reporting Center supports members in the execution of high-quality financial reporting. Whether you are a financial statement preparer or a member in public practice, this center provides exclusive member-only resources for the entire financial reporting process, and provides timely and relevant news, guidance and examples supporting the financial reporting process. Another important focus of the Financial Reporting Center is keeping those in public practice up to date on issues pertaining to preparation, compilation, review, audit, attestation, assurance and advisory engagements. Certain content on the AICPA’s websites referenced in this guide may be restricted to AICPA members only.
Select Recent Developments Significant to This Guide
Attestation Clarity Project
To address concerns over the clarity, length, and complexity of its standards, the ASB established clarity drafting conventions and undertook a project to redraft all the standards it issues in clarity format. The redrafting of Statements on Standards for Attestation Engagements (SSAEs or attestation standards) in SSAE No. 18, Attestation Standards: Clarification and Recodification, represents the culmination of that process.
The attestation standards are developed and issued in the form of SSAEs and are codified into sections. SSAE No. 18 recodifies the “AT” section numbers designated by SSAE Nos. 10–17 using the identifier “AT-C” to differentiate the sections of the clarified attestation standards (AT-C sections) from the attestation standards that are superseded by SSAE No. 18 (AT sections).
The AT sections in AICPA Professional Standards remain effective through April 2017, by which time substantially all engagements for which the AT sections were still effective are expected to be completed. The clarified attestations found in AT-C sections are effective for practitioners’ reports dated on or after May 1, 2017.
Note
1
See the definition of the term
nonissuer
in the AU-C Glossary (AICPA,
Professional Standards
).
__________________________
TABLE OF CONTENTS
Chapter
1
Industry Overview—Banks and Savings Institutions
Description of Business
Regulation and Oversight
Regulatory Background
Deposit Insurance Fund
The Dodd-Frank Act
Regulatory Capital Matters
Capital Adequacy
Prompt Corrective Action
Annual Independent Audits and Reporting Requirements
Additional Regulatory Requirements Concerning the Sarbanes-Oxley Act, Corporate Governance, and Services Outsourced to External Auditors
Other Reporting Considerations
2
Industry Overview—Credit Unions
Description of Business
The Board of Directors
The Supervisory Committee
The Credit Committee
Charters, Bylaws, and Minutes
Financial Structure
Credit Union System
Corporate Credit Unions
Regulation and Oversight
Government Supervision
NCUA
Regulatory Capital Matters
Natural Person Credit Unions
Corporate Credit Unions
Annual Audits
Other Reporting Considerations
3
Industry Overview—Finance Companies
Description of Business
Debt Financing
Regulation and Oversight
4
Industry Overview—Mortgage Companies
Description of Business
Regulation and Oversight
Reporting Considerations
HUD Programs
Asset Servicing for Investors
5
Audit Considerations and Certain Financial Reporting Matters
Overview
An Audit of Financial Statements
Audit Risk
Terms of Engagement
Audit Planning
Materiality
Performance Materiality
Use of Assertions in Assessment of Risks of Material Misstatement
Risk Assessment Procedures
Risk Assessment Procedures and Related Activities
Understanding the Entity and Its Environment, Including the Entity’s Internal Control
Risk Assessment and the Design of Further Audit Procedures
Identifying and Assessing the Risks of Material Misstatement
Designing and Performing Further Audit Procedures
Evaluation of Misstatements Identified During the Audit
Audit Documentation
Timely Preparation of Audit Documentation
Documentation of the Audit Procedures Performed and Audit Evidence Obtained
Assembly and Retention of the Final Audit File
Using the Work of an Auditor’s Specialist
Using the Work of a Management’s Specialist
Processing of Transactions by Service Organizations
Consideration of Fraud in a Financial Statement Audit
Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Communications to Management and With Those Charged With Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Compliance With Laws and Regulations
Responsibility for Compliance With Laws and Regulations
The Auditor’s Consideration of Compliance With Laws and Regulations
Going-Concern Considerations
Evaluating Whether Substantial Doubt Exists
Written Representations
Consideration of the Effects on the Auditor’s Report
Documentation
Written Representations
Written Representations as Audit Evidence
Management From Whom Written Representations Are Requested
Written Representations About Management’s Responsibilities and Other Written Representations
Date of, and Period(s) Covered by, Written Representations
Form of Written Representations
Doubt About the Reliability of Written Representations and Requested Written Representations Not Provided
Information Other Than Financial Statements
Certain Financial Reporting Matters
Disclosures of Certain Significant Risks and Uncertainties
Segment Reporting
Regulation and Supervision of Depository Institutions
Introduction
Rule Making
Examinations
Enforcement
Planning
Detection of Errors and Fraud
Evaluation of Contingent Liabilities and Related Disclosures
Going-Concern Considerations
Regulatory Reporting Matters—Interpretation and Reporting Related to GAAP
Auditor and Examiner Relationship
6
Cash and Cash Equivalents
Introduction
CIPC and Cash Equivalents
Deposits With Other Financial Institutions
Balances With Federal Reserve Banks and FHLBs
Federal Funds Sold
Cash on Hand
Accounting and Financial Reporting
Definition of Cash and Cash Equivalents
Classification of Cash Flows
Acquisition and Sales of Certain Securities and Loans
Gross and Net Cash Flows
Cash Receipts and Payments Related to Hedging Activities
Financial Statement Presentation and Disclosure
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
7
Investments in Debt and Equity Securities
Introduction
U.S. Government and Agency Obligations
Municipal Obligations
Asset-Backed Securities
Other Structured Credit Products
Issues of International Organizations and Foreign Governments
Other Securities
Transfers of Securities
Regulatory Matters
Bank Accounting Advisory Series
Accounting and Financial Reporting
Introduction
OTTI
Unrealized Gains and Losses
Premiums and Discounts
Interest Income
Consolidation
Special Areas
Transfers and Servicing of Securities
Troubled Debt Restructurings
Loans and Debt Securities Acquired With Deteriorated Credit Quality
Financial Statement Presentation and Disclosure
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
8
Loans
Introduction
The Lending Process
Credit Strategy
Credit Risk
Lending Policies and Procedures
Types of Lending
Commercial, Industrial, and Agricultural Loans
Consumer Loans
Residential Real Estate Loans
Lease Financing
Trade Financing
CRE and Construction Loans
Foreign Loans
Loans Involving More Than One Lender
Regulatory Matters
Real Estate Lending Standards
Retail Credit Loans and Residential Mortgage Loans
Troubled Debt Restructurings
Credit Card Lending
Nontraditional Mortgage Products
Correspondent Concentration Risks
Leveraged Lending
Income Recognition on Problem Loans
Credit Union Lending Restrictions
Lending Statutes
Uniform Commercial Code
Bank Accounting Advisory Series
Accounting and Financial Reporting
Interest Income, Delinquency Fees, Prepayment Fees, and Rebates
Loan Fees, Costs, Discounts, and Premiums
TDRs
Real Estate Investments
Lease Financing
Foreign Loans
Commitments
Financial Statement Presentation and Disclosure
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
9
Credit Losses
Introduction
Management's Methodology
Loan Reviews
Loans Individually Evaluated for Impairment
Loans Collectively Evaluated for Impairment
Estimating Overall Credit Losses
Regulatory Matters
Credit Unions
Accounting and Financial Reporting
Sources of Applicable Guidance
Allowance for Loan Losses
Loss Contingencies
Financial Statement Presentation and Disclosure of Loan Impairment and Allowance for Credit Losses
Auditing
Objectives
Planning and Risk Assessment
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
10
Transfers and Servicing and Variable Interest Entities
Introduction
Asset-Backed Securitizations
Loan Participations and Loan Syndications
Loan Servicing
Regulatory Matters
Accounting and Financial Reporting
Mortgage Loans and MBSs Held for Sale
Transfers and Servicing of Financial Assets
Sale of Financial Assets
Transfers of Loans With Recourse
Servicing Assets and Liabilities
Secured Borrowings and Collateral
Loans Not Previously HFS
Financial Statement Presentation
Financial Statement Disclosure
VIEs
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
11
Real Estate Investments, Real Estate Owned, and Other Foreclosed Assets
Introduction
Foreclosed Assets
Real Estate Investments
Regulatory Matters
Accounting and Financial Reporting
Foreclosed Assets
Accounting and Reporting for Long-Lived Assets to Be Disposed of by Sale
Accounting and Reporting for Long-Lived Assets to Be Held and Used
Real Estate Investments
Sale of Real Estate Assets
Development Costs
Allocation of Income and Equity Among Parties to a Joint Venture
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
12
Other Assets, Other Liabilities, and Other Investments
Introduction
Premises and Equipment, Net
FHLB or FRB Stock
Identifiable Intangibles
Goodwill
Customers' Liabilities on Acceptances
Other Miscellaneous Items
Regulatory Matters
Accounting and Financial Reporting
Premises and Equipment, Net
FHLB or FRB Stock
Goodwill and Other Intangible Assets
Exit or Disposal Activities
Asset Retirement Obligations
Customers' Liabilities on Acceptances
Mortgage Servicing Advances
Impairment of Long-Lived Assets
NCUSIF Deposit
Other Investments
Contributed Assets
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
13
Deposits
Introduction
Demand Deposits
Savings Deposits
Time Deposits
Brokered Deposits
Dormant Accounts
Closed Accounts
Other Deposit Services
The Payments Function and Services
Regulatory Matters
Limitations on Brokered Deposits
Classification of Deposits of Credit Unions
Accounting and Financial Reporting
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
14
Federal Funds and Repurchase Agreements
Introduction
Federal Funds Purchased
Repos
Regulatory Matters
Accounting and Financial Reporting
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
15
Debt
Introduction
Long Term Debt
Short Term Debt
Regulatory Matters
Accounting and Financial Reporting
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
16
Income Taxes
Introduction
Banks and Savings Institutions
Other
Credit Union
Regulatory Matters
Accounting and Financial Reporting
Deferred Tax Assets and Liabilities
Temporary Differences
Financial Statement Presentation and Disclosure
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Substantive Tests
17
Equity and Disclosures Regarding Capital Matters
Introduction
Banks and Savings Institutions
Introduction
Equity
Holding Company Equity and Regulatory Capital
Disclosures for Banks and Savings Institutions
Disclosure for Holding Companies
Illustrative Disclosures for Banks and Savings Institutions (The example disclosures that follow are for illustrative purposes only)
Credit Unions
Introduction
Members’ Equity
New Credit Unions and Low Income Designated Credit Unions
Disclosures for Natural Person Credit Unions
Illustrative Disclosures for Natural Person Credit Unions
Corporate Credit Unions
Introduction
Equity
Disclosures for Corporate Credit Unions
Illustrative Disclosures for Corporate Credit Unions
Mortgage Companies and Mortgage Banking Activities
Introduction
Disclosure for Mortgage Companies and Mortgage Banking Activities
Illustrative Disclosures for Mortgage Companies and Mortgage Banking Activities
Regulatory Capital Matters for All Entities
Regulatory Capital Disclosures for Branches of Foreign Institutions
Regulatory Capital Disclosures for Trust Operations
Auditing
Banks, Savings Institutions, and Credit Unions
Mortgage Companies and Activities
18
Derivative Instruments: Futures, Forwards, Options, Swaps, and Other Derivative Instruments
Introduction
Risks Inherent in Derivatives
Types of Derivatives
Uses of Derivatives to Alter Risk
Variations on Basic Derivatives
Regulatory Matters
Accounting and Financial Reporting
Financial Statement Disclosures
Auditing Considerations
19
Business Combinations
Introduction
Regulatory Matters
Accounting and Financial Reporting
Purchase of a Loan or Group of Loans
Loans and Debt Securities Acquired With Deteriorated Credit Quality
Special Considerations in Applying the Acquisition Method to Combinations of Mutual Entities
Impairment and Disposal Accounting for Certain Acquired Long Term Customer Relationship Intangible Assets
Branch Acquisitions
Auditing Considerations
20
Fair Value
Introduction
Accounting and Financial Reporting
Definition of Fair Value
Valuation Techniques
Present Value Techniques
The Fair Value Hierarchy
Measuring the Fair Value of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
Measuring Fair Value When the Volume or Level of Activity for an Asset or a Liability Has Significantly Decreased
Using Quoted Prices Provided by Third Parties
Disclosures
Fair Value Option
Auditing Considerations
21
Trust and Asset Management Activities
Introduction
Personal Trusts
Corporate Trusts
Employee Benefit Trusts
Common or Collective Trust Funds
Regulatory Matters
Accounting and Financial Reporting
Auditing
Objectives
Planning
Internal Control Over Financial Reporting and Possible Tests of Controls
Financial Reporting Controls of the Trust
Substantive Tests Related to Financial Statement Audits
Substantive Procedures Related to the Trust
Audits of Unit Investment Trusts
22
Insurance Activities
Introduction
Types of Insurance Coverage
Credit Life
Credit Accident and Health
Property and Liability
Writing Policies
Commissions
Regulatory Matters
Accounting
Premium Income
Acquisition Costs
Investment Portfolios
State Laws
Commissions
Consolidation Policy
Financial Statement Presentation
Auditing
23
Reporting Considerations
Introduction
Forming an Opinion on the Financial Statements
Reports
Unmodified Opinion
EOM and Other-Matter Paragraphs Added to the Independent Auditor's Report
Modified Opinions
Financial Statements Prepared in Accordance With a Special Purpose Framework
Members' Shares Reported as Equity
Communication of Internal Control Related Matters
Reports on Supervisory Committee Audits
Example Report on the Application of Agreed-Upon Procedures Performed in Connection With a Supervisory Committee Audit
Example Reports on the FDIC Loss Sharing Purchase and Assumption Transactions
Small Business Lending Fund Auditor Certification Guidance
Appendix A — Illustrative Unqualified PCAOB Reports
Appendix
A
FDI Act Reporting Requirements
B
Regulatory Reporting Matters—Interpretation and Reporting Related to U.S. GAAP
C
Information Sources
D
Overview of Statements on Quality Control Standards
E
The New Revenue Recognition Standard: FASB ASC 606
F
The New Leases Standard: FASB ASU No. 2016-02
G
Accounting for Financial Instruments
H
Schedule of Changes Made to the Text From the Previous Edition
EULA
Guide
Cover
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Chapter 1Industry Overview—Banks and Savings Institutions
Description of Business
1.01 Banks and savings institutions provide a link between entities that have capital and entities that need capital. They accept deposits from entities with idle funds and lend to entities with investment or spending needs. This process of financial intermediation benefits the economy by increasing the supply of money available for investment and spending. It also provides an efficient means for the payment and transfer of funds between entities.
1.02 Government, at both the federal and state levels, has long recognized the importance of financial intermediation by offering banks and savings institutions special privileges and protections. These incentives—such as access to credit through the Board of Governors of the Federal Reserve System (Federal Reserve) and federal insurance of deposits—have not been similarly extended to commercial enterprises. Accordingly, the benefits and responsibilities associated with their public role as financial intermediaries have brought banks and savings institutions under significant governmental oversight. Federal and state regulations affect every aspect of banks and savings institutions' operations. Similarly, legislative and regulatory developments in the last decade have radically changed the business environment for banks and savings institutions.
1.03 Although banks and savings institutions continue in their traditional role as financial intermediaries, the ways in which they carry out that role became increasingly complex in the most recent decade. Under continuing pressure to operate profitably, the industry adopted innovative approaches to carrying out the basic process of gathering and lending funds. The management of complex assets and liabilities, development of additional sources of income, reactions to technological advances, responses to changes in regulatory policy, and competition for deposits all added to the risks and complexities of the business of banking. These include the following:
Techniques for managing assets and liabilities that allow institutions to manage financial risks and maximize income have evolved.
Income, traditionally derived from the excess of interest collected over interest paid, became dependent on fees and other income streams from specialized transactions and services.
Technological advances accommodated complex transactions, such as the sale of securities backed by cash flows from other financial assets.
Regulatory policy alternately fostered or restricted innovation. Institutions have looked for new transactions to accommodate changes in the amount of funds they generally must keep in reserve or to achieve the desired levels of capital in relation to their assets.
Regulatory policy has expanded and become increasingly complex in response to increasing complexities in the industry and recent economic recessions.
1.04 In addition, competition arose from within the industry, and from other competitors such as investment companies, brokers and dealers in securities, insurers, and financial subsidiaries of commercial enterprises. These entities increased business directly with potential depositors and borrowers in transactions traditionally executed through banks and savings institutions. This disintermediation increased the need for innovative approaches to attracting depositors and borrowers.
1.05 Disintermediation also led to a sharp increase in consolidation within the financial institution industry, which created several large and highly complex financial holding companies. With the changes previously mentioned and the increased size of many financial institutions, a dramatic shift in lending, capital market activities, and sources of funding occurred. During this transformation of the industry, the regulatory system issued additional guidance in an effort to keep pace with the changes in the industry.
1.06 The economic recession, which officially began in 2007, revealed vulnerabilities in financial institutions and the regulatory system that contributed to unprecedented strain and stress on financial institutions and in financial markets. As a result, certain financial institutions either failed or came close to failure and many additional widespread repercussions affected or continue to affect this industry. Total assets of “problem” institutions reached their highest levels since 1993 during the first quarter of 2010, per the FDIC’s Quarterly Banking Profile. In addition, the number of bank failures reached the highest level since 1992. The economic crisis fueled the demand for financial reform. As a result, on July 21, 2010, the president signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) into law in response to weaknesses in the financial services industry that were believed to have contributed to the economic recession. See further discussion of the Dodd-Frank Act beginning at paragraph 1.31.
1.07 The innovation and complexity related to this industry creates a constantly changing body of business and economic risks. These risk factors, and related considerations for auditors, are identified and discussed throughout this guide.
Regulation and Oversight
1.08 As previously discussed, the importance of financial intermediation has driven governments to play a role in the banking and savings institutions industry. Banks and savings institutions have been given unique privileges and protections, including the insurance of their deposits by the federal government through the FDIC and access to the Federal Reserve's discount window and payments system. (See chapter 2, "Industry Overview—Credit Unions," of this guide for the roles and responsibilities of the National Credit Union Administration [NCUA]). Currently, the federal oversight of institutions receiving these privileges falls to the following three agencies:
1.09 The Federal Reserve and the FDIC are independent agencies of the federal government. The OCC is a bureau of the U.S. Department of Treasury (Treasury). Each state has a banking department and are members of an organization called the Conference of State Bank Supervisors.
1.10 Although each agency has its own jurisdiction and authority, the collective regulatory and supervisory responsibilities of federal and state banking agencies include the following:
Establishing (either directly or as a result of legislative mandate) the rules and regulations that govern institutions' operations
Supervising institutions' operations and activities
Reviewing and approving organization, conversion, consolidation, merger, or other changes in control of the institutions and their branches
Appraising (in part through on-site examinations) institutions' financial condition, the safety and soundness of operations, the quality of management, the adequacy and quality of capital, asset quality, liquidity needs, and compliance with laws and regulations
1.11 Given the nature of their duties to consider a bank’s risk characteristics and loss behavior, the banking agencies also have significant influence in aiding banks and savings institutions with technical details on the application of U.S. generally accepted accounting principles (GAAP) in regulatory reporting. For example, the agencies also have certain authority over the activities of auditors serving the industry. Further, the Federal Reserve, the FDIC, the OCC, and the NCUA constitute the Federal Financial Institutions Examination Council (FFIEC). The FFIEC sets forth uniform examination and supervisory guidelines in certain areas related to banks’ and savings institutions’ and credit unions’ activities, including those involving regulatory reporting matters.
1.12 This chapter discusses the current regulatory approach to the supervision of banks and savings institutions and provides an overview of major areas of regulation and related regulatory reporting. Legislative efforts over time to regulate, deregulate, and reregulate banks and savings institutions are also addressed in this chapter. Other specific regulatory considerations are identified throughout this guide in the relevant chapters.
1.13 In addition to supervision and regulation by the federal and state banking agencies, publicly held holding companies are generally subject to the requirements of federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934 (the 1934 Act). Holding companies whose securities are registered under the 1934 Act must comply with its reporting requirements through periodic filings with the SEC. Publicly held institutions that are not part of a holding company are required under Section 12(i) of the 1934 Act to make equivalent filings directly with their primary federal regulators. Each of the agencies has regulations that provide for the adoption of forms, disclosure rules, and other registration requirements equivalent to those of the SEC as mandated by the 1934 Act.
1.14 Both the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and the FDIC Improvement Act of 1991 (FDICIA) were adopted to protect the federal deposit insurance funds through the early detection and intervention in problem institutions, with an emphasis on capital adequacy.
Regulatory Background
1.15 Declining real estate markets in the mid-1980s contributed heavily to widespread losses in the savings institutions industry, evidenced by the insolvency of the savings industry's federal deposit insurance fund. The FIRREA provided funds for the resolution of thrift institutions, replaced the existing regulatory structure, introduced increased regulatory capital requirements, established limitations on certain investments and activities, and enhanced regulators' enforcement authority. The FIRREA redefined responsibilities for federal deposit insurance by designating separate insurance funds, the Bank Insurance Fund (BIF), and the Savings Associations Insurance Fund (SAIF). The FIRREA also established the Resolution Trust Corporation (RTC) to dispose of the assets of failed thrifts. The RTC is no longer in existence and its work is now being done by the FDIC.
1.16
